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This report contains certain “forward-looking statements” concerning the Company’s operations, economic performance and financial condition, which are subject to inherent uncertainties and risks. Actual results could differ materially from those anticipated in this report. When used in this report, the word “estimate,” “project,” “anticipate,” “expect,” “intend,” “believe,” and similar expressions are intended to identify forward-looking statements.
Item 1. BUSINESS
Chase General Corporation was incorporated November 6, 1944 for the purpose of manufacturing confectionery products. In 1970, Chase General Corporation acquired a 100% interest in its wholly-owned subsidiary, Dye Candy Company. (Chase General Corporation and Dye Candy Company are sometimes referred herein as “the Company”). This subsidiary is the main operating company for the reporting entity.
PRINCIPAL PRODUCTS AND SERVICES AND METHODS OF DISTRIBUTION
The subsidiary, Dye Candy Company, operates two divisions, Chase Candy Products and Seasonal Candy Products. Chase Candy Products involve production and sale of a candy bar marketed under the trade name “Cherry Mash”. The Seasonal Candy Products involve production and sale of coconut, peanut, chocolate, and fudge confectioneries. The products of both divisions are sold to the same type of customers in the same geographical areas. In addition, both divisions share a common labor force and utilize the same basic equipment and raw materials. Therefore, segment reporting for the two divisions is not maintained by Management and, accordingly, is not available for inclusion in this filing.
The principal products produced are as follows:
Chase Candy Products of Dye Candy Company produces a candy bar under the trade name of “Cherry Mash”. The bar is distributed in six case sizes:
(1) 60 count pack
(2) 12 boxes of 24 bars per box
(3) 200 count shipper box
(4) 100 count shipper box
(5) 100 # 2 box Counter Display
(6) 4 box - 36 count Counter Display
In addition to the regular size bar, a “mini-mash” is distributed in seven case sizes:
(1) 24 - 12 oz. bags
(2) 6 jars - 60 bars per jar
(3) 23 # wrapped bars
(4) 22 # unwrapped bars
(5) 12 - 12 oz. bags
(6) 6 - 4 # jars
(7) 24 - 12 oz. clamshell containers
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DESCRIPTION OF BUSINESS (CONTINUED)
Seasonal Candy Products of Dye Candy Company produces coconut, peanut, chocolate, and fudge confectioneries. These products are distributed in bulk or packaged. Principal products include:
(1)
Coconut Bon-Bons
(6) Peanut Brittle
(2)
Coconut Stacks
(7) Peanut Clusters
(3)
Home Style Poe Fudge
(8) Champion Crème Drops
(4)
Peco Flake
(9) Jelly Candies
(5)
Peanut Squares
(10) Frosted Pretzels
The Champion Creme Drops, Frosted Pretzels and Jelly Candies are not produced by the Company, but repackaged for wholesale distribution.
All products are shipped to customers by commercial haulers.
COMPETITION AND MARKET AREA
The Chase Candy Division bars are sold primarily to wholesale candy and tobacco jobbing houses, grocery accounts, vendors and repackers. “Cherry Mash” bars are marketed in the Midwest region of the United States. For the years ended June 30, 2012 and 2011, this division accounted for 53% and 55%, respectively, of the consolidated revenue of Dye Candy Company.
The Seasonal Candy Division is sold primarily on a Midwest regional basis to national syndicate accounts, repackers, and grocery accounts. For the years ended June 30, 2012 and 2011, the division accounted for 47% and 45%, respectively, of the consolidated revenue of Dye Candy Company.
The Company has no government contracts, foreign operations or export sales. In addition, all domestic sales are primarily in the Midwest region of the United States.
The Company is a seasonal business whereby the largest volume of sales occur in August through December of each year. The net income per quarter of the Company varies in direct proportion to the seasonal sales volume.
Due to the seasonal nature of the business, there is a heavier demand on working capital in the fall and winter months of the year when the Company is building its inventories in anticipation of August through December sales. The fluctuation of demand on working capital due to the seasonal nature of the business is common to the confectionery industry. If necessary, the Company has the ability to borrow short-term funds to finance operations prior to receiving cash collections from fall sales. The Company occasionally offers extended payment terms of up to sixty days. Since this practice is infrequent, the effect on working capital is minimal.
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COMPETITION AND MARKET AREA (CONTINUED)
Prompt, efficient service are traits demanded in the confectionery industry, which results in a continual low volume of back-orders. Therefore, at no time during the year does the Company have a significant amount of back-orders.
The confectionery market for the type of product produced by the divisions of Dye Candy Company is very competitive and quality minded. The confectionery (candy) industry in which the divisions operate is highly competitive with many small companies and, within certain specialized areas, a few competitors dominate. In the United States, the dominant competitors in the coconut candy industry are Crown Candy Company, Vermico Candy Company, and the Seasonal Candy Division of Dye Candy Company with approximately 70% of the market share among them. In the United States, Old Dominion has approximately 80% of the market share of the peanut candy business in which the Seasonal Candy Division operates. Dye Candy Company sells approximately 95% of its products in the Midwest region with seasonal orders being shipped to the Southern and Eastern regions of the United States. Except for the coconut candy industry, Dye Candy Company is not a dominant competitor in any of the candy industries in which it competes. Dye Candy Company’s market share in the coconut industry does not vary significantly from year to year.
Principal methods of competition the Company uses include quality of product, price, reduced transportation costs due to central location, and service. The Company’s competitive position is positively influenced by labor costs being lower than industry average. Chase General Corporation is firmly established in the confectionery market and through its operating divisions has many years of experience associated with its name.
RESEARCH AND DEVELOPMENT
The Company has not developed any new products during fiscal years ending June 30, 2012 and 2011.
RAW MATERIALS AND PRINCIPAL SUPPLIERS
Raw materials and packaging materials are produced on a national basis with products coming from throughout the United States. Raw materials and packaging materials are generally widely available, depending of course, on common market influences.
PATENTS AND TRADEMARKS
The largest single revenue producing product, the “Cherry Mash” bar, is protected by a
trademark registered with The United States Patent and Trademark Office. The Company considers this trademark very important to the Company. This trademark expires in the year 2013. The Company and its legal representatives do not expect any impediment to renewing this trademark prior to its expiration.
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EMPLOYEES
As of June 30, 2012, the Company had 20 full time employees. There were 12 in manufacturing, 2 in maintenance, 1 plant manager, 1½ in sales and marketing, 2½ in finance and administration, and 1 in general office. This expands to approximately 31 full time personnel during the busy production months of August through December.
CUSTOMERS
For the years ending June 30, 2012 and 2011, Associated Wholesale Grocers accounted for 31% and 31% of gross sales, and 12% and 36%, respectively, of accounts receivable. For the years ending June 30, 2012 and 2011, Wal-Mart and its affiliates accounted for 11% and 12%, respectively, of gross sales and 30% and 16%, respectively, of accounts receivable. No other customer accounted for more than 10% of the Company’s revenues in fiscal years 2012 and 2011.
ENVIRONMENTAL PROTECTION AND THE EFFECT ON PROBABLE GOVERNMENT REGULATIONS ON THE BUSINESS
Except as described in the paragraph below and to the best of management’s knowledge, the Company is presently in compliance with all environmental laws and regulations and does not anticipate any future expenditures in this regard.
The Company has received correspondence from the legal counsel for the Public Building Commission of Chicago (PBC), alleging that the Company previously owned and operated a manufacturing facility in Chicago and that the Company is a liable party for environmental response costs incurred by the PBC in the amount of $822,642. It is the opinion of management, after reviewing the letter with counsel, that further information is required to determine the validity of the claim, the likelihood of an unfavorable outcome to the Company, and an amount of potential loss to the Company if any at all. Management believes significant questions need to be resolved and answered before completing its assessment of the validity of the claim. In the event that a loss were to be incurred by the Company in connection with this claim, the loss would be material.
NEED FOR GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES
The Company is required to meet the FDA guidelines for proper labeling of its products and for contents of its products.
REPORTS TO SECURITY HOLDERS
The Registrant is not required to send the annual audit report, annual 10-K report and quarterly 10-Q reports to security holders since the stock is not actively traded. These reports are available at the Registrant’s registered office or they are available on-line on the SEC’s EDGAR website.
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Item 1A. RISK FACTORS
Not applicable to smaller reporting company.
Item 1B. UNRESOLVED STAFF COMMENTS
The Company has no unresolved SEC staff comments at June 30, 2012.
Item 2. PROPERTY
We conduct our operations from two buildings as follows:
Chase Warehouse - This building located in St. Joseph, Missouri is owned by Dye Candy Company, a wholly-owned subsidiary of the registrant. The facility is currently devoted entirely to the storage of supplies, and the warehousing and shipping of candy products. This warehouse is over seventy years old and is in fair condition and adequate to meet present requirements. The warehouse has approximately 15,000 square feet and is not encumbered.